Lehman: the lessons learnt

﻿Last Tuesday (15 September) was the first anniversary of Lehman Brothers’ bankruptcy filing. New York was at the epicentre of the financial earthquake, although the aftershocks continue to be felt around the world.

Last week The Lawyer asked some of the lawyers who were in Manhattan at the time for their memories of the day and their thoughts on the legacy for the global legal market.

Paul Weiss Rifkind Wharton & Garrison chairman Brad Karp says the period was characterised by a constant barrage of emergency assignments for key clients and for lawyers such as him, who were ­trying to ­figure out which domino was ­likely to fall next and what the implications would be.

“We were dealing with ­uncharted territory at that point,” admits Karp.

Shearman & Sterling chairman Rohan Weerasinghe recalls the high levels of activity during the period.

“We were working with some potential investors into Lehman to try to solve some of the ­problems,” Weerasinghe says. “So we were extensively involved with Lehman, and after that AIG and Merrill Lynch as well. The activity levels worldwide had already started to slow down in the summer and the fall, and I guess people were having concerns about what was going to be the impact of that.”

In contrast, Sullivan & Cromwell chairman Rodgin Cohen, who became the lawyer most identified with the financial meltdown in the US after ­appearing on a succession of deals, recalls an “extraordinarily difficult” weekend, where both professional and personal matters were at full pace.

“Obviously Lehman was dominant but AIG was already quite active and complicated,” remembers Cohen. “And the daughter of one of my best friends was getting married, so that was an interesting juggling act. I left the meeting at the Fed at about 7pm, changed into a tux in the car, went to the wedding, did not stay for the ­dinner and was back at the Fed by around 10.30pm.”

On the morning of Sunday 14 September 2008 Milbank Tweed Hadley & McCloy chairman Mel Immergut was on the phone to a number of his partners fielding questions from various clients on whether the firm could take on different types of representations.

“One of the clients told me that their institution had just heard a report from the meeting rooms where they were trying to save Lehman that it was not going to work and that a filing was inevitable,” recalls Immergut. “I felt particularly sad because Lehman was a very good client of ours and also I had a bunch of friends who worked at Lehman and it was a very good, historic name I was sad to see go.”

The bank’s demise was an unprecedented event, but at a firm such as Milbank, which has an active financial restructuring practice, the phone immediately began to ring off the hook with calls from numerous clients asking for help. The challenge was to figure out how, with so many different types of client, to decide who to represent.

“In the immediate aftermath of something like this a lot of time is spent dealing with questions like that,” says Immergut. “And Lehman was no exception. We then relatively quickly made the decision that we wanted to try to become counsel to the creditors’ committee, which we thought we were particularly appropriate for, and which we did.”

Milbank continues to advise the committee in relation to Lehman’s bankruptcy.

Dewey & LeBoeuf was another firm involved with the events, ­having been engaged on a matter by AIG that weekend. Chairman Steve Davis says “fundamental changes” have taken place at the top of the world’s legal markets in the year since Lehman failed.

“Personally, my sense is that, when we have a bit more perspective, we’ll look back on the period running up to Lehman as a bubble in the legal market,” argues Davis. “It was fuelled by a number of ­factors leading to huge profits being made by financial institutions and the hedge funds and in the service providers like the law firms. And people will say that was a real ­aberration. What people thought in 2007 was ‘normal’ will turn out to be, with the benefit of hindsight, an aberration.”

Karp echoes Davis when he points to the lessons he and his partners have learnt as a result of the crisis.

“First and foremost, I’ve learnt that nothing can be taken for granted,” says Karp. “That just because an institution existed and thrived for a century or more does not mean that it has a right or an entitlement to exist indefinitely into the future – and that has ­implications for running a law firm. In fact, you can make the argument that it’s much easier for a law firm to fail than it is for a financial institution that has hundreds of billions of dollars of assets and tens of thousands of complex counter-party relationships.”

“The danger is in overgeneralising,” says Friedman. “You can point to four, five or six firms that have imploded or substantially recoiled because they were riding that wave of activity and built out their ­capabilities to support that. But we’ve taken a much different path. We’re building up best-in-breed practice areas with the design to be sustainable, not to ride a particular fad.”

Friedman says that, although Skadden has a securitisation ­practice and real estate finance practice, the firm has had those capabilities for 20 years or more, many years before the recent ­raging markets.

“They were certainly beneficiaries of the uptick in activity, but we didn’t build them to exploit a moment in time, so we don’t have to dismantle them” adds ­Friedman. “It’s just a different approach.”

Bubble or not, the heady days of 2007, and the vast riches that were taken for granted by many lawyers, now seem like a distant memory.